| Region |
1991
|
1995
|
1996
|
1997
|
1998
|
1999
|
|
North America
|
43.9
|
38.5
|
39.6
|
38.6
|
42.7
|
53.3
|
|
Western Europe
|
43.0
|
41.4
|
42.4
|
40.2
|
48
|
52.9
|
|
Russia/Eastern Europe
|
--
|
70
|
100
|
100
|
100
|
100
|
|
Middle East
|
56
|
46.4
|
58.8
|
74.2
|
81.9
|
93.6
|
|
Asian-Pacific
|
43
|
21
|
23.9
|
28
|
32
|
46.1
|
|
Africa/Latin America
|
--
|
75
|
69.6
|
--
|
83
|
--
|
Table 3d. Average Company Defense Percentage, Top 100 Global
Defense Companies
|
|
The comparisons
suggest several important consequences of change:
- From a corporate
perspective, concentration on defense works better than splitting efforts
with commercial markets. Although one of the global government initiatives
since the mid-1980’s has been the promotion of defense industry operations
in civilian markets, corporate decisions seem to be moving in the opposite
direction. For those companies that have made it to the Top 100, the average
fraction of annual revenues in the defense business has been steadily
increasing in the late 1990s, starting with 38% in 1995 to 56% in 1999
(Table 3a). Similarly, the number of companies that have at least half
of their revenue coming from the defense business has also grown from
32 in 1995 to 55 in 1999. After experimenting with commercial operations
in the early 1990s, the most successful companies are now concentrating
more on defense.
- Arms export markets
are growing in significance. The global trend for national governments
is to fund domestic defense industries to less than the amount needed
for survival and growth, assuming that the deficit will be obtained from
a combination of commercial markets and arms exports. But since the winning
companies are deciding to concentrate more on defense, global arms markets
are of growing importance to those companies, and hence to national defense
industrial strategies. Diffusion of weaponry and military technology is
becoming the norm.
- US and Asian companies
are the relative winners. The total annual defense revenue of US and
Asian companies in the Top 100 is growing. The revenue of companies on
the list from the Western European countries is not (Table 3c). This trend
highlights the difficulties experienced by the European defense industries.
- Trans-Atlantic
defense integration seems key to Western Europe’s success. The data
does not yet reflect the full impact of the recent European consolidations
that created two large defense giants (BAE Systems and the European Aeronautics,
Defence, and Space Company (EADS)). But the revenue trend suggests that
European defense industry, if left to operate semi-autonomously, may experience
a continued decline in the number of companies represented in the Top
100 globally. The ramifications of this remain to be seen.
- Additional commercial-military
integration approaches are needed. National defense industrial strategies
globally have encouraged diversification to commercial markets to obtain
better and faster access to rapidly developing commercial technologies.
But if the leading companies are concentrating more on defense, other
adjunct mechanisms for merging commercial technology developments with
national armament requirements will be needed. Countries that develop
the most effective overall processes may emerge as global winners in domestic
armaments development.
Regional Comparisons
Table 4 compares the
major regions with respect to important aspects of the diversification and
commercialization strategies of countries within the region.
Using the region-wide
aggregations to characterize the general trends of the countries within
each region, the comparisons suggest that:
- All regions are
generally moving toward diversified armament strategies, although those
strategies are at different stages of implementation. Western Europe,
the Middle East, and Latin America are solidly committed. The Asia-Pacific
region is using imports to help upgrade defense industrial bases, but
self-sufficiency is not likely for the foreseeable future. Russia and
the United States, for different reasons, are being pressured to increase
import levels.
- The regions with
developed commercial sectors are also heavily committed to commercialized
defense industrial bases. These include North America, Western Europe,
and the Asia-Pacific region. Some countries in the other regions are also
pursuing commercialization, but with mixed success to date.
- Key countries
with historical strong indigenous strategies (France, the United States,
Russia) are moving toward more diversified strategies. The rate and
scope of diversification of these three countries will affect the entire
global arms market.
Towards
Global Comparative Advantage
As nations and corporations
adjust to the new defense economic realities, a more diffused armaments
world will probably evolve naturally toward a division of labor based on
relative competitive commercial advantage. In the extreme, diffusion
and competition could ultimately lead to developer nations, producer nations,
integration nations, servicing nations, and financial/deal making nations
(or transnational companies hosted in nations which give them their basic
identity). There could also be hardware and software nations.
Some nations may even
become the repository of key global armaments capabilities to such an extent
that they have implicit semi-sanctuary protection from conflict. For example,
during WW II, both Spain and Switzerland were bases of operation for intelligence
activities for all warring parties.
The global division
of labor will also extend to different classes of armaments, with companies
assuming global sector leadership. One important indicator of the current
state of global comparative advantage is the distribution of the leading
defense companies across defense sectors. Table 7 gives the current distribution
and ranking within key defense market segments.[11]
Note that:
- US companies hold
the lead in all sectors, and are also second in all but helicopters.
- US and Western
European companies hold 80 percent of the 48 positions in Table 2.
Two Japanese companies hold six positions, Israeli Aircraft Industries
holds three, and Rosvooruzheniye, representing the Russian defense industrial
base, holds one.
- The large defense
giants (Lockheed-Martin, Boeing, BAE Systems, Raytheon, and EADS)
hold the top five positions in Missiles/Munitions and Aircraft,
and four of the top five positions in Satellites/Space Systems.
The current state of
comparative advantage is the platform from which the future will unfold.
Today, the profile of probable future winners and losers is murky.
Globally nations as a matter of defense industrial policy, and corporations
as a matter of business strategy, are jockeying for position. They are searching
for niche advantage. They are investigating: (a) both high technology and
lower technology markets; (b) product lines at the platform, system, subsystem,
and component levels; and (c) the full range of services—systems integration,
training, maintenance, testing, upgrades, and retrofits. They are looking
for global markets and market niches sized to their own capacities and objectives.
Nations and companies
are also increasingly willing to team, merge, and acquire to secure comparative
advantage. They are also trying to create export control regimes that will
facilitate comparative advantage, while at the same time many are sensitive
to the potential security implications of the consequences.
Some nations may
be capable of competitively encompassing all of the developmental and production
requirements for the most advanced technology weapons. At the same time,
individual defense companies in those nations may also choose to concentrate
on specific functions, products, or services that are materially less advanced
than the global state of the art because they will provide greater shareholder
value. Other nations as a matter of policy will create more specialized
indigenous defense industrial bases. And as in other economic sectors
characterized by rapidly developing high technology, countries whose governments
and defense industries are fleet of foot in orchestrating deals and creating
and manipulating opportunities to meet their own armament needs will possess
a competitive advantage.
In some countries,
foreign suppliers will also become significant competitors to domestic industry
in subsequent national arms procurements. This process will eventually
erode the commercial viability of less competitive indigenous defense industries
and further strengthen the global positions of the winners.
Although uncertain
at this time, it seems likely that within a decade or less, financial imperatives
will force a clearer picture. The global profile of national and corporate
comparative advantages in the defense sector will then become the basic
menu for future defense acquisitions from that point forward.
Section
4
First Order Security Consequences of a Diffused Armaments World
Considering the overall
situation of individual nations, and the tradeoffs each country must make
between political, economic, domestic, and purely military considerations,
the results of diversification and commercialization produce many positive
benefits. These include greater economies of scale, access to technology,
and jobs for national defense industrial bases. There is a lesser need to
maintain a modern high-technology defense industrial infrastructure. There
is cheaper and faster access to weaponry for military force postures. Countries
are more able to bear the cost of their own defense. The diffused purchasing
system also promotes greater interoperability among forces by providing
access to technologically equal systems.
At the same time,
the trends identified above will likely alter significantly the security
calculations and military practices of states. Increased dependencies
for many arms importing states on foreign arms suppliers and for arms exporters
on arms buyers in the new global armaments system will increase actual or
perceived insecurities. The diffused armaments world will have several
semi-permanent macro characteristics.
- Technology diffusion
will accelerate. Weapons and military-relevant technologies will
migrate rapidly and routinely across national borders. Arms export regimes
and sanctions increasingly will be difficult to manage.
- Security of arms
supplies will be less assured. Increased diversification of armament
strategies inevitably confers political and economic risks and targetable
wartime vulnerabilities. States accepting continued dependence on external
arms supplies will seek assured access to military support in crises by
diversifying sources of suppliers in peace, stockpiling critical components
and exploiting “gray” arms markets during a crisis.
- National control
over domestic arms industry outputs will diminish. Loss of control
over the decisions of domestic arms producers will reflect the demands
of competing markets and also, selectively, the views of national owners.
These characteristics,
now steady state features of the global security landscape, will induce
change. Nations will have to adapt to the new defense economic realities.
They will also have to reconsider their approaches to warfare. And in turn,
the United States will be confronted with several new classes of security
issues.
Section
5
Adapting
to New Defense Economic Realities
How well any state accommodates
the on-going transformation depends in part on how well it recognizes the
strategic security implications of the changes. The most important derivative
characteristics that create major security considerations for nations
globally include:
- In the short term,
advanced-technology weapons will continue to reach emerging nations.
Aircraft, missiles, and defense electronics lead the way in systems that
are dispersing globally. US reluctance to provide technology to Asian
and Middle Eastern countries is countered by the willingness of other
nations to provide systems and technologies. If they so choose, second-tier
countries can also regularly modernize by relying on competitive market
forces to regulate costs without investing in, and maintaining, expensive
infrastructures. Systems integration, training, and maintenance services
are also now available to those countries on the global market.
- There will be
a strong military rationale to promote stable and long-term coalitions.
The logic will not be that of burden-sharing or of a common enemy. The
goal will be a pragmatic way to achieve robustness in a defense industrial
base that the nation can reliably access, whether or not it fights in
a coalition, or as an independent actor. To work, these coalitions
may need to take the form of business alliances, rather than political
consortia.
- Second-tier arms
producers globally are facing problems adapting to the new armaments
world. They have significant over-capacity, inefficient production,
high unit costs, technological gaps, and general inability to keep up
with the technological frontier. There is not consensus on which way the
defense industries of these countries will turn, ranging from strong alliances
with large Western defense companies and the pragmatic abandonment of
national goals of self-sufficiency to concentration on niche production
with an export emphasis. Either model would give second-tier countries
the ability to produce significant and dangerous weaponry. Since the
second-tier countries create major markets for first-tier suppliers, how
these countries resolve this situation will have a shaping impact on the
global armaments system.
- The microeconomic
structure of the global defense industrial sector has changed significantly.
The previous structure of an oligopoly industry supporting monopsony buyers
has been replaced by the model of a few buyers and a few sellers for large
procurements. This market structure has not been studied in depth in the
past, and there is not a good basis for understanding behavioral outcomes.
There appears to be a clear divergence between the incentive structures
dictating the behaviors of government and industry that will have to be
reconciled. There are strong opportunities and rationale for evasion in
the transmission of information between companies and governments. Over
the last decade, defense industries have also gained increased leverage
globally. There could be short and mid-term surprises.
- Defense industries
globally may suffer from competition with commercial markets for skilled
personnel. The market for skills represented by the current annual
global armaments budget of about $250B is competing with a global commercial
high technology market in excess of $1.6T. If the defense sector loses,
the pace and character of global military force development will suffer.
Nations that have learned how to effectively integrate commercial and
defense development and production will emerge as winners.
Finally, defense
industries have gained increased leverage in the global armament system.
Even though a buyer’s market exists, the products and services available
to satisfy market demand are increasingly being determined by choices made
by defense companies in light of shareholder value considerations. For
example:
- Mergers, acquisitions,
creation of offshore workforces, and partnering arrangements for international
competitions are focused more heavily on securing competitive advantage
than on satisfying host government security objectives.
- Investment of
corporate R/D funds is focused on procurements, or future products,
determined by corporate objectives.
- Corporations left
to fend in international markets for survival, and employing significant
numbers of domestic workers, have increasingly stronger leverage over
host governments to provide more lenient export control regimes
to allow them to remain competitive.
- Decisions to stay
in the defense business reside with corporate leadership, not government
intent.
Finally, as programs
become increasingly collaborative, and are focused on interleaved and interdependent
stage-wise execution, it is becoming more difficult for governments to
know and understand the consequences of choices made by individual companies.
Collectively, these actions give defense companies increased influence when
compared with what they had in a more command, less-commercialized relationship
with their host governments.
Section
6
Warfare in a Diffused Armaments World
If the trends continue,
which appears likely, the first order security characteristics of the diffused
armaments world no longer are troublesome aberrations, but a permanent part
of the strategic landscape. Warfare must now contend with the strategic
facts of armaments diffusion and defense industrial commercialization as
the normal situation. Military scientists, defense planners, and combat
commanders must then turn to the preparation and conduct of war in a world
whose global armament system is structurally very different than that of
the recent past. They will have to resolve how the fundamental approaches
to warfare must change in order to take into account the new realities.
They will have to rethink approaches to strategy, military doctrine, intelligence
capabilities and expectations, and logistics writ large (acquisition, mobilization,
sustainment).
Nations that develop
effective ways to leverage the characteristics of a diffused armaments world
to meet their own national security objectives will have superior strategies
that may ultimately prove decisive. Table 8 illustrates the positive
as well as the negative military aspects of a globally diffused armaments
world.
| Characteristics
of the Diffused Armaments World |
Advantages For
Warfare |
Disadvantages for
Warfare |
|
Routine proliferation of systems and technology
|
- Cheaper / faster access to latest capabilities
- External markets for DIB
- Interoperability of allies
- Competition promotes innovation
|
- Easier for opponents to arm
- Rapid change in regional balances
- Static defense capabilities become progressively
obsolete
- Enhances competitor capabilities
|
|
Greater problems with security-of-supply issues
|
- Allows access to global capabilities
- Promotes flexible armament strategies
- Creates incentives for suppliers to remain friendly
|
- Creates political and economic vulnerabilities
- Creates targetable wartime vulnerabilities
- Complicates rules of engagement
|
|
Loss of control over Defense Industrial Base (DIB)
priorities
|
- Allows DIB to receive funding and capabilities
from other sources
- Promotes cost-efficiencies from shared resources
- Transnational ownership promotes de-facto coalitions,
and creates reverse economic leverage against other
owners.
|
- May not be able to meet national armament schedules,
surges
- Shareholder value arguments may shift investment
priorities
- Transnational ownership creates political and economic
vulnerabilities
|
Table 8. Strategy Considerations: The Pluses
and Minuses of Diffusion
|
|
Each characteristic
offers both warfare advantages and disadvantages. For example:
- The combat risks
from a better-armed opponent are offset by the ability of a country to
more economically and rapidly access the latest weaponry.
- Security-of-supply
disadvantages are offset by the ability to maintain advanced force postures
at more affordable costs.
- Partial loss of control
over the defense industrial base is offset by the cost-sharing of infrastructure,
as well the promotion of coalitions that in themselves create reverse
economic leverage over those actors that could divert priorities.
The most effective military
strategy in a diffused armaments world will be one that exploits the advantages
associated with these characteristics, while at the same time targeting
the vulnerabilities created for potential opponents.
Warfare Changes
Astute military exploitation of both the positive
and negative attributes in Table 8 will probably lead to war fighting
changes. To explore these changes, doctrinal investigations were conducted
for selected aspects of warfare. Experienced military planners were presented
with the characteristics of the diffused armaments world and asked to evaluate
how those characteristics would affect war preparation, combat, and strategic
competition management. The areas investigated are listed in Table 9.
The results of the doctrinal
investigations suggest several changes when compared with a more autarkic
armaments world that has been the traditional reference frame for recent
military thought. For example, the analysis suggests that:
- In future wars
between symmetric opponent states (e.g., both advanced or both developing
nations), neither country may be able to assume very far in advance
that its forces will have decisive technological superiority at the outset
of combat. This is because of the ease and relatively short lead time
with which states will be able to acquire advanced combat systems if they
so choose and can afford it. As a result, strategy, tactics, command
and control, and training may become a more decisive determinant of combat
outcomes than the relative technological level of forces.
- Security of supply
considerations will become an increasing focus of combat. Targeting the
opponent’s armament supply infrastructure, and protecting one’s own, will
become even more important than in the past. At the same time, since third
party and commercial providers will be involved, the rules of engagement
for such actions may be complex. A short war will be more desirable to
the aggressor but may be more difficult to achieve. At the same time,
the risks from failure to terminate a conflict quickly may be higher.
- The increased
likelihood of combat between technologically balanced forces will create
a strong incentive to preemptively employ forces en masse early as
opposed to precision escalation, which may expose unexpended systems to
effective counterstrikes. Active defenses will also increase in value.
Because of the incentives by both sides to mass early, marginal advantages
in the number of deployed systems and/or survivable reserves may prove
decisive.
- There will be incentives
to time military actions to the schedule of arms deliveries. For example,
the logic of the naval embargo to prevent the arrival of nuclear weapons
during the Cuban missile crisis will become more commonplace.
- Concepts of strategic
industrial mobilization will change, since nations can rapidly appeal
to the global armaments system for whatever they can afford to procure.
There will also be incentives to create new strategic reserve concepts
to help mitigate risk.
Finally, it may not
be possible to forecast opponent’s weaponry with the same lead times as
in the past, and defense planners will have to adapt accordingly. Forecasting
methods that depend on the structure of national research, development,
and acquisition processes to help identify the characteristics and timing
of future weaponry for a specific country may not be as effective. Paradoxically,
it may also be easy to know much about an opponent’s weaponry once he acquires
it. In this respect warfare will become more open book.
Asymmetric
warfare
In the diffused armaments
world, asymmetric forms of warfare may flourish.[12]
The diffusion
of systems and technology will provide more opportunities for states to
develop unique operational employment concepts that draw on capabilities
that would otherwise not be as readily available. In addition to diverse
combat and support systems, systems integration, training, and maintenance
services can also be purchased. Additionally, the diversity of possible
options increases the likelihood that countries will make asymmetric choices
to fit their own circumstances.
Clever states will also
have the option of choosing a combination of symmetric and asymmetric employment
concepts. If the balance of forces between combatants is roughly equal in
both the quantitative and qualitative aspects of weaponry, then the nation
that is able to best employ asymmetric concepts may have an advantage.
Futuristic warfare
concepts
In the diffused armaments
world, the technologies enabling revolutionary military change will be generally
available to all. States that want to explore new uses will be able
to do so. Not all will be successful. Some will not be able to innovate.
Others will have difficulty assimilating new technologies into their force
postures. But some may also be able to fully develop new warfare concepts.
Yet the ease of access to existing weapons may also have a reverse inhibiting
effect. Since it will be easier and cheaper for states to purchase “machine-age”
weaponry, there may be less incentive to advance the state of military art
for “information-age” weaponry. It will be easier to assume a follower strategy
that purchases systems, supporting doctrines, and training from others.
If most countries adopt this strategy, then those few countries that concentrate
on revolutionary military change will set the global standard for futuristic
warfare concepts.
The United States
is the acknowledged global leader in the pursuit of advanced warfare concepts.
The program that has been termed the “American RMA” revolves around three
fundamental capabilities: advanced intelligence, surveillance, and reconnaissance;
advanced command and control; and the precision use of force. Network-centered
warfare employing functionally related but physically distributed combat
systems employed against target sets with similar characteristics is a focal
point for development.
A few countries (e.g.,
Russia, China) are pursuing independent lines of investigation about the
nature of future war, drawing on US directions as input data. But more
countries are interested in the programs articulated by the United States.
Within the American RMA, individual platforms are less important in many
ways than their on-board capabilities and how those capabilities are linked
to off-board assets and to each other. Nations pursuing equivalent net-centric
concepts will have access to similar on-board and off-board systems through
the resources of the diffused global armament system, and may be able to
employ those systems via lesser capable (and less expensive) platforms.
As a result, the basic concepts of future war implied by the current
American RMA will be more widely available to nations that choose to pursue
those concepts.
It will also be easier
for countries to pursue niche countermeasures to future warfare concepts
being pursued by their opponents. For example, anti-access capabilities
to thwart US force projection capabilities, and counters to US precision
strike assets, are already being offered on the open market. Better defensive
systems will be available, as will improved capabilities to execute counter-strikes
against an opponent’s precision weaponry. It may be harder to achieve air
or information superiority. As a result, warfare may have increased casualty
levels when compared with those of the Gulf War or of Kosovo operations.
Countries also will
have the opportunity to develop futuristic warfare concepts based
on cheaper and lower technology systems that can be purchased on the
global market. Examples include low-observable cruise missiles, UAVs, mines,
ballistic missiles, and space imagery and commercial communications services.
Future warfare concepts based on fewer most-advanced-technology systems
may clash on the battlefield with other future warfare concepts based on
large numbers of less-capable systems. Both may involve the innovative use
of combat power, but perhaps in very different ways.
Changes in National
Armament and Defense Industrial Strategies
Future armament and
defense industrial strategies will also adapt. For example:
- Some nations will
see an advantage in deliberately foregoing significant development costs
in favor of a dynamic purchase-oriented procurement strategy. They
will continuously buy, pay for, adapt, use the current operational state
of the art, and then repurchase again.
- The systems integration
capability will be a critical function. Integration will have to occur
in five different arenas: between the subsystems of a single combat platform;
between combat platforms; between armament elements developed within defense
industries and those procured commercially off-the-shelf; between armament
elements produced domestically and those procured externally; and between
the combat systems of different military services. This is an historical
US strength with a very high entry cost. The United States may be able
to retain a global competitive advantage. At the same time, there are
currently several countries, and several defense companies, who have targeted
the systems integration function as a competitive niche area and offer
those services globally. Systems-integration-for-hire will be a characteristic
of the diffused armaments world.
- The quality and timing
of effective training on new combat systems obtained from abroad will
be critical, as will the maintenance of these systems once obtained. However
training and maintenance services will be increasingly available commercially.
As a consequence, even second- and third-tier states that can afford it
may be able to acquire and employ weapons in types, numbers, and at rates
that otherwise exceed their expected ability to use them effectively.
- There also will
be a need for some states to redefine the structure and operational procedures
governing their national defense industrial bases. There are three
major alternatives: (a) a smaller and probably less efficient version
of the past, which could include re-subordination of some functions
to government ownership; (b) a fully integrated national industrial base,
which would include the reconciliation of government vs. industrial incentive
structures, plus funding commitments that put more predictability into
defense markets; and (c) a defense industrial base focused on core or
niche capabilities, which would result in a scaling down of the targeted
market size, and also perhaps new ways for companies to operate effectively
in both commercial and defense markets.
Future Defense Innovation
Defense innovation will
also reflect the characteristics of diffusion. For example,
- For supplier
nations, there will be a continuous requirement to develop new military
capabilities. The rationale goes far beyond that of countering increasing
threats. International competitive advantage will require sustained
developmental effort. Additionally, national defense industrial bases
must be in continuous demand by host governments lest they shift assets
to non-defense markets.
- For defense firms,
the principal objective of continuous R/D will be to maintain, or gain,
a competitive advantage. Some of that effort, but by no means all,
will also advance the global state of the art in armaments. Some effort
will advance abilities to produce and distribute mid-technology weaponry
faster and cheaper. Some will advance abilities to provide better, faster,
and cheaper services such as systems integration, upgrades, retrofits,
training, and maintenance. And some will advance the competitive edge
of individual defense companies. The aggregate R/D effort will also
advance the ability of any state to buy better weapons and support services
for its defense dollar at whatever level of technology a state chooses
to adopt.
- Governments will
also be more dependent for R/D outcomes based on decisions made by private
corporations with diverse markets. Consequently, it may be more difficult
to achieve consistent and programmed research and development to meet
the specific objectives of a given nation without direct government funding.
At the same time, in some technical fields, i.e., those with significant
commercial potential, the probability of sustained and even serendipitous
innovation will increase.
- New military innovations
may also emerge rapidly because of the incorporation of modern commercial
business processes in government operations coupled with commercial
dependencies in defense industries. The new commercial business processes
heavily emphasize networking, information sharing, feedback, and decentralization,
which collectively increase the likelihood and rapidity of concept and
product development and implementation.
Changes in Competitive
Strategies
Countries trying to
maintain a competitive advantage over potential opponents will also have
to adapt to new considerations. For example:
- The diffused armaments
world blurs the concept of an indigenous weapons system. Hence competitive
strategies based on relative armaments capabilities need to be focused
on the entire diversified armaments process of a target nation, and not
only on indigenous national defense capabilities. A complicating factor
is the fact that the global defense industrial base, including possibly
even the defense industries of potential opponents, becomes a common denominator
that all nations can at least theoretically access if they have the funds.
- The rate at which
advanced technology weaponry can be provided to states that can pay for
it may decrease the relative value of high technology weaponry (since
all may have it), and thus change the focal point of competitive strategies
targeted against those states.
- No one nation
have confidence of its ability to effectively determine the kinds of armaments
technology or systems that flow to any particular country. This makes
the process of technological competition itself a more difficult task.
- In some respects,
nations will be routinely competing with themselves. Since market
dynamics play a major role in the transfer of systems and technologies,
states may have to fight against their own combat systems in the hands
of opponents, and perhaps upgraded by third party suppliers. This is
the normal situation faced by private corporations competing in high-technology
commercial markets, but now it also may become the norm in the security
arena.
- The behavior of
important defense companies will become an explicit factor in the strategic
competition between states. Corporations heavily engaged in the international
arms market may behave in very different ways. They could be highly competitive,
or collaborative, to promote shareholder value. Their actions could also
either promote, or perhaps inhibit, the competitive advantage of their
host nation. Other Implications The propositions advanced in this section
are representative. They do not cover all areas in which change may be
warranted. They do suggest, however, that future military thought will
probably take a different approach to warfare in a diffused armaments
world than that of the recent past. The new access to arms made possible
by that world will not necessarily be a cause of conflict; however, it
will probably shape how nations prepare for and prosecute conflict.
Section
7
Specific National Security Issues for the United States
In addition to the general
issues raised by the character of the global future security environment,
there are also several specific issues or opportunities for the United States:
- The United States
and its defense industries are the dominant players in the global armament
system. The United States has the largest homogenous internal defense
market in the world. It owns over half of the global arms export market,
with total sales larger than the aggregate sum of the next five countries.
It has the strongest commercial information technology sector, the strongest
university science base, and the most commercial experience in the global
economy. US national armament strategy and defense industrial strategy
will have a shaping influence on the entire global armament system for
the foreseeable future.
- The trans-Atlantic
issue is key. There are dim prospects for significant trans-Atlantic
defense industrial cooperation unless the United States substantially
opens its domestic market and is willing to export advanced technology.
At the same time, defense industries on both sides of the Atlantic are
undertaking cooperative initiatives, but feel constrained by governmental
policies. An increasingly conflictual environment will affect domestic
industry in both countries. The form of the eventual outcome will
shape the entire global armament system.
- The ready availability
of advanced combat systems, and even developmental facilities, for
countries with money to pay for them will gradually shorten the lead
time for US competitive strategies. The ability of the United States
to stay inside an opponent’s research, development, and acquisition cycle
for new weaponry will become increasingly difficult to estimate, depending
on the degree of commercial diversification and cross-border acquisition
in the two national armament processes.
- New conventional
nonproliferation regimes and arms control agreements are going to be difficult
to obtain until the domestic issues, and the eventual form of the
emerging global armament system, are resolved. Many states see that defense
globalization and arms exports offer critical domestic benefits (for example,
economies of scale, access to technology, increased national revenues,
and jobs).
- The United States
has time to shape the global armament system to help further US security
objectives. Analogous historical periods of change produced a stable
armament system only after all military, economic, political, and social
factors were in balance. The issue is more encompassing than US export
control policy or defense industrial strategy, and should be framed in
the broadest national security terms.
The United States currently
has a substantial technological lead globally. Nevertheless, it also seems
clear that, in addition to sustained investment to stay at the cutting edge
of military technology, the United States will need to develop new approaches
to managing the strategic competition in order to maintain military
dominance.
Managing the Strategic
Competition
Traditionally, US competition
management has focused on the maintenance of military-technical superiority
over all potential adversaries. From that reference frame, there are three
prevalent schools of thought about the potential impact of the current trends.[13]
- Reversal of sustainable
US technological superiority. The first school posits a global diffusion
of technology that results in erosion of US superiority. Given a decline
in internal demand, increased armament exports, and military-relevant
technology development (e.g. information and biological technologies)
being driven by commercial markets, the net result is a more rapid and
large-scale proliferation of weapons and technologies. The United
States cannot sustain its technical advantage.
- Continued US technological
superiority. The second school posits that US industrial strength
and economic know-how, carefully managed, will be sufficient for the United
States to maintain a technological lead in spite of global trends.
- Asymmetric competition.
The third school argues that most foreign countries will decide that they
cannot compete with the United States technologically, so they will try
and compete asymmetrically. Technological superiority will become less
relevant.
The results of this
research suggest that the issue is a broader one. The focus of competition
management should be not on military-technical superiority, but rather on
maintaining US strategic military advantage in a world that operates with
a structurally different kind of armaments processes than that of the last
50 years, and one in which it is likely that some basic parameters of warfare
will change as nations adapt to the military characteristics of the new
armaments world.
Recently a special study
by the Defense Science Board (DSB) recommended that the DoD create a new
approach to maintaining military dominance, shifting from the protection
of military-relevant technologies to preserving, in the face of globalization,
the military capabilities essential for US military objectives.[14]
Protection of
essential technological capabilities would continue, but that would not
be the primary mode of maintaining dominance. Rather it would be supplemented
by the continuous direct enhancement of US capabilities, an institutionalized
process for assessing US vulnerabilities, and risk mitigation programs focused
on information system integrity.
In a more diffused
armaments world, it seems that an important element of military dominance
will be the ability of the United States to maintain what will be termed
“armaments dominance.” Armaments dominance has two essential components:
(1) the ability of a country to have, in its fielded military force posture,
the armaments necessary to prevail in combat whenever conflict occurs; and
(2) a process for providing those armaments that gives confidence to the
national leadership that it can provide the needed capabilities in time,
and also helps deter adversaries because they see that the process can operate
faster, better, more flexibly, and more reliably than their own.
Armaments dominance
will come from the exploitation of the characteristics of the more diffused
armaments world in ways that are more effective than that of potential adversaries.
In addition to the military-technical characteristics and size of opposing
force postures, comparative armaments dominance will be a function of such
factors as:
- The relative ability
of states to access global capabilities to effectively arm their
force postures.
- The relative ability
of states for effective systems integration across all of the systems
integration dimensions.
- The relative ability
of states to shape the armament process of potential adversaries
via exploitable characteristics of the global armament system.
- The relative strategic
intelligence processes of opposing states for those aspects of intelligence
that facilitate armaments dominance.
- The relative ability
of states to exploit the characteristics of the diffused global armament
system, and the probable weaknesses of opponents within that system,
to develop superior war preparation and combat strategies.
This research suggests
that the recommendations of the Defense Science Board should be extended
to encompass these kinds of factors in order to insure that the United States
will be able to maintain armaments dominance in the future over all potential
adversaries.
Finally, mid to long-term
planning in the United States should start to consider the probable changes
in basic approaches to warfare that will occur as nations leverage the
characteristics of a diffused armaments world to their own advantage.
For example, 10-20 year future warfare assessments should incorporate postulated
changes in the global armament system and the new warfare characteristics
that could be associated with those changes. Using the world of indigenous
and dedicated defense industries as the sole reference frame for future
defense planning is not going to be sufficiently robust. For example,
in addition to alternative global armaments systems, until such time as
they stabilize, planning variants should also include alternative trans-Atlantic
outcomes and alternative defense-industrial alignments for the second-tier
countries.
A Longer Term View
There is a historical
precedent for a new sustained era of armaments diffusion as a result of
revolutionary military-technical change. The cycle that was initiated
by the industrial revolution lasted about fifty years. World War I did not
change the basic characteristics of the diffused global armament system
that existed between about 1890 and 1940. It was only changed by the nationalization
of defense industries during the period of World War II. The Cold War,
with its bipolar political emphasis, was a historical anomaly. Hence it
could be argued that, barring another global conflict, the emerging armaments
world may endure into the latter half of the 21st Century.
On the other hand,
it is also possible that over the next few decades nations will attempt
to return to mostly indigenous national armament strategies. There could
be several plausible factors motivating such a change:
- The possession of
a capable domestic defense industrial base in many countries is viewed
as a symbol of status or power. This motivation could eventually dominate.
If a sufficient number of nations return to self-reliance, they collectively
reduce the size of the arms market that is the cornerstone of the diffused
global armaments world. · Some
nations may conclude that a more free market system for their arms industry
is neither in their own interest nor in the interests of global security.
Unable to afford nationalization, and unwilling to accept the security
risks of outsourcing, they will shift to a regulated and smaller domestic
industry as the only practical alternative.
- A globally diffused
armament system may not be able to operate as a stable economic subsystem
of the new globalized economy. It will have to change to stabilize.
- The world may return
to increased international tension, or even to the brink of war, which
could lead to widespread nationalization of defense industries.
Because of these motivations,
a diffused armaments world may not be stable over the long term. If not,
then there may be a window, perhaps two to three decades long, during which
the global armament system will operate as a more diffused system, but that
window will close as the above factors begin to dominate.
If in fact, as history
suggests, the diffused armaments world endures, then the United States will
be well served to take the necessary steps to adapt to its characteristics.
On the other hand, if diffusion is a transitory phenomenon, then US actions
during the window of diffusion will not only affect security strategy during
that period, but also will be a key determinant of the future security environment
once the window closes.
In either case, for
at least the next 10-20 years, the emerging characteristics of the diffused
global armament system should be an explicit factor in US security planning.
Section
8
Important Strategic Uncertainties
Current trends in the
transformation of global defense industries and markets suggest that the
emerging global armament system will be that of the diffused armaments world
for at least several decades. At the same time, there are also several strategic
uncertainties.
Future defense budgets
One of the factors contributing
to the current transformation is the global decline in defense budgets,
down as of 1997 by about 40 percent from the Cold War high of 1987. Although
there are also other influences, future conditions in both defense markets
and defense industries will be a function of the size of global military
expenditures over the next twenty years. There is current debate as to whether
defense budgets will continue to decline, or whether they will gradually
start to rise. There is also concern that the rising cost of personnel will
make less funding proportionately available for armaments.
If defense budgets continue
to decline, the trends and conclusions of this research will be reinforced.
In the extreme, it is even theoretically possible that the demand for some
classes of the most expensive weaponry could fall below the minimum level
required for private sector profitability. If defense industrial bases
remain commercialized, then the production capacity for such weaponry could
vanish.
If defense budgets continue
to rise gradually, the conclusions of this research still apply as long
as governments continue to depend on diversified armament strategies and
commercialized defense industrial strategies. Even a gradual rise in defense
budgets will not appreciably change the size of the global arms market from
the perspective of private industry. It would take about a 2 percent annual
increase above the inflation rate to restore global military expenditures
to the 1987 level by 2020. This level of increase seems unlikely unless
the international security situation appreciably changes. If that should
happen, then it is also likely that governments, as in the years immediately
preceding WW II, will return to more autarkic armament strategies and nationalized
defense industrial bases. They also will be constrained to conduct warfare
with whatever capabilities they have been able to develop as of that time.
Consequently, even though
the size of global defense budgets clearly influences the levels and types
of deployed armaments, the character of the global armament system will
be determined by whether or not governments continue with diversification
and commercialization strategies. In addition to the size of the defense
budgets, there are also several current structural uncertainties that will
affect those two key trends.
Structural uncertainties
Many of the actual determinants
of the future global armament system will result from decisions not yet
made and economic and business processes not yet field-tested. The uncertainties
are not resolvable now. Time is required. Many of the decisions will be
made, or perhaps not made, as governments continue to struggle with the
basic tension between the political imperatives to preserve regional and
global security and the economic imperatives to preserve national military
capacities. The microeconomics of the emerging global armament system are
also operating in untested waters, with unknown consequences at this time.
The most important structural
uncertainties that bear on the conclusions of this research can be grouped
into several categories: National decision-making uncertainties
- Will domestic economic
pressures encouraging national governments to support the globalization
of defense industries win out over countervailing political pressures
encouraging governments to inhibit that globalization?
- How far will trends
in deregulation of the armament industry go? How independent will individual
companies be allowed to become in the international marketplace to further
their own economic objectives?
- Will the trend toward
commercialization of defense industrial bases place important domestic
defense developmental capabilities at unacceptable levels of risk as those
companies respond to normal commercial factors and pressures (e.g. shifts
in investment capital, market and product decisions, mergers, governance,
ownership)? If so, will governments choose to revert to forms of defense
industrial strategy that are less commercialized?
- Will new global or
regional political regimes be arranged that will significantly alter the
character of the global armament system? For example, will new
coalitions define robust armament blocs between the partner states? If
so, will these coalitions result in an armaments world of indigenous armaments
blocs, but with a high degree of diffusion within each bloc?
Future US policy decision
uncertainties
- Will the United States
choose to abandon its current shaping role in the global armaments system?
- Will the US defense
market open up significantly to international competition?
Global armament system
operational uncertainties
- What will be the
ultimate form of the relationship between US and European defense industrial
and armament strategies and the resulting trans-Atlantic defense industrial
bases? Will the relationship in the steady state be a highly-fused partnership,
destructive competition, or some middle ground? Will the second tier defense
industries align with Western companies for survival, or will they focus
on more indigenous niche production strategies, albeit of lesser technical
capability?
- Will the global defense
industry as a whole be able to attract a sufficient skill base of scientists
and engineers to continue innovative developments and high technology
production? The resolution will not only affect the comparative and competitive
defense industrial capacities of nations, but also perhaps the pace of
the global state of the art in future military-technical developments.
- The microeconomics
of defense markets and industries are moving into uncharted waters. The
previous structure of supplier oligopolies supporting a monopsony has
given way to that of a larger number (but still relatively few) suppliers
supporting a larger number (but similarly few) buyers. This structure
has not been studied extensively. New, and perhaps unanticipated behaviors
of both buyers and sellers may emerge. Will there be important surprises
that will ultimately cause significant changes in national armament and/or
defense industrial strategies?
- The diffused global
armament system will have to operate as a defense-economic sector within
the context of the globalized commercial economy. How well will it function?
Will it be stable, or will there be significant unanticipated cross-influences
that will bear on its viability? The resolution of these issues will probably
constitute important aspects of national and corporate strategy in many
nations for at least the next 10-20 years.
Alternatives
to the globally diffused armaments world
The uncertainties discussed
above also create strategic uncertainties about the future global armaments
system itself. Even though at this time the globally diffused armaments
world seems the most likely, there are also other possibilities.
One possibility is
a return to a more autarkic world as a result of national decisions to mitigate
or remove the troublesome security characteristics that flow from
diversified armament strategies and commercialized defense industrial bases.
There could be re-nationalization of industry, expansion of state
arsenals, greater guaranteed aggregate funding levels to private defense
companies, and stronger export control and arms control regimes. These decisions
could stem from political concerns about national security risk, from changes
in the underlying security conditions, or from the microeconomics of defense
industry operations, which may eventually surface Achilles Heels that mandate
changes in government policies if defense industrial bases are to be viable.[15]
At the same time, nations would also have to increase their defense budgets,
and extricate themselves from the armaments networks that they have developed.
There are also plausible
alternatives in which there is not global consensus. These hybrid variants
stem from the strategic characteristics of individual countries. For example,
the Western nations have a long history of alliances, while the Eastern
nations prefer self-reliance. National economic and technological capabilities
also differ by region. For example, the European nations view autarky to
be infeasible given their national characteristics. On the other hand, Russia
would like to become self-reliant at the most advanced levels of military
technology as soon as her economic conditions permit.
There are two especially
interesting hybrid alternatives that are consistent with current national
tendencies and characteristics.
- A trans-Atlantic
alliance of diffused armaments activity, and an Asian-Pacific region of
mostly self-reliant nations. Russia would move toward autarky if
possible, and the Middle Eastern, Latin American, and African nations
would try to buy from both sides, and also be niche suppliers, while gradually
fostering their indigenous capabilities.
- A high/low armaments
system. Nations globally would operate as a diffused armament system
for mid-technology weaponry. On top of that, a small number of states
(certainly including the United States) would also operate as self-reliant
national armament systems for the most advanced weaponry. They could also
become selective global suppliers for advanced systems under self-controlled
political conditions. Some less-advanced nations would also promote means
of asymmetric warfare to offset military imbalances.
Neither of these two
hybrid variants is probably stable for an extended period. They both would
eventually lead to either more widespread diffusion or more widespread self-reliance.
However, the transition periods could last for several decades.
Finally, a basic
assumption of this research has been that the concept of nation- states
remains intact for the foreseeable future. Some have questioned this,
arguing that current global political, economic, and social trends reflect
a general diminution of the nation state in favor of an alternative collaborative
international political and economic order.
If that possibility
is allowed, then the current rationalization of defense industries and markets
is actually one manifestation of a much larger and more significant general
trend toward globalization. In that context, a new global armaments system
would actually be embedded within major changes in international political
structures, and possibly the advent of truly international military forces
that belong to larger international groupings such as the UN, the EU, or
NATO. In that case, there are also other major classes of alternative futures
than those considered above.
Section
9
Summary
Research on the transformation
underway in global defense markets and industries and its implications for
the future of warfare has produced three overarching conclusions:
- The world is in a
historical epoch of strategic change in the global armament system. Lessons
from previous eras have strong implications for the United States.
- The current indicators
point to a globally diffused armaments world with strategic implications
for the future of warfare. This world would be a return to the historically
armament conditions that existed prior to the start of World War II, representing
what historically are normal conditions.
- The re-balancing
of the global armament system will be an important factor shaping the
global security environment for the foreseeable future. This dynamism
creates security issues and opportunities for the United States.
It also seems clear
that the transformations in global defense markets and industries,
even though underway for over a decade, should still be viewed as in
the experimental stage. Further significant changes appear likely. These
will be necessary in the short term to resolve internal inconsistencies
within national defense industrial strategies and to reconcile, across countries,
national defense industrial strategies with the overall size of the global
defense market. The results will probably concentrate even more of
the world’s defense industrial capacity in a small number of very large
transnational defense companies, and thus reinforce the trends toward
a diffused armaments world.
[1]
The global system of armaments development, production, procurement, and
supply through a combination of public and private interests, policies,
plans, programs, and resources, wherever those are located.
[2]
A national armaments budget is the funding level associated with research,
development, test, evaluation, and procurement. It is spent to support
state arsenal institutions (e.g., laboratories), the private defense industrial
base, and imports. The global armaments budget is the sum of all national
armaments budgets.
[3]All
expenditures are given in constant 1997 US dollars. Data on GNP, military
expenditures and arms import/export levels (deliveries) is taken from
the latest Worldwide Military Expenditures and Arms Transfers, 1998,
Department of State Bureau of Arms Control, January 2000. Armaments
budgets are analyst estimates based on individual national data from
various sources.
[4]
Article 51 of the United Nations Charter grants to each nation the
“inherent right of individual or collective defense” against armed
attack. This is generally viewed as an argument for the international
legitimacy of further weapons acquisition and force modernization
in the current world of uneven deployment of military technology and
new post Cold War security concerns.
[5] Table 2a (1991) focuses on 47 countries, including
the Soviet Union. The equivalent table for 1997 has 49 countries,
since the Soviet Union has been replaced by Russia, Belarus, and
Ukraine. The basic data for the calculations used to construct Table
2 is taken from the sources cited previously in footnote 3.
[6]
For example, suppose the United States has a national armaments
budget of $75B, spends $5B of that on imports, and US defense
companies generate $30B in revenue from the international arms
market. The arms export market share of US domestic defense industrial
base funding is thus 30/(75-5+30) = 30 percent. An index of 0
percent indicates full government funding of its domestic defense
industrial base. The closer the index is to 100 percent, the more
commercialized is the defense industrial base. If the data were
readily available for all countries, a complete commercialization
index would also include corporate revenues from commercial sector
markets.
[7]
For example, Italy moved from being a country with a low diversification
strategy and low arms export dependency in 1991 (see Table 2a)
to a country with a moderate diversification strategy and moderate
arms export dependency in 1997 (see Table 2b). This change is
an increase in both categories.
[8] For comparison purposes, Russia (1997) has been
compared with the Soviet Union (1991).
[9] The tables are based on data compiled by International
Defense Review (1991) and Defense News (1997).
[10]
“Total defense revenue” is the annual revenue from defense,
“average defense %” is the average per cent of annual
company revenue that is from defense, “Co. with >50%
defense revenue” is the number of companies with at least
50% of their annual revenue from the defense business,
and “Co. with Def. Revenue > $1B” (for example), is
the number of companies with annual defense revenue in
excess of $1B.
[11] V. Ciardello, OSD Director, Office of Financial
& International Analysis, Industrial Affairs. Adapted
from Briefing, “Interoperability and Security,” November
2000, based on data from various sources.
[12]
As used here, asymmetric warfare occurs when one of
the combatants employs military forces that do not
emulate the spectrum of capabilities of his opponent,
but rather focus on victory via a different balance
of forces and/or operational concepts and organizational
adaptations. This is the definition that has been
adopted by the Office of the Secretary of Defense
(Net Assessment) in its on-going investigations of
future warfare.
[13] The National Security Implications
of Transformation in Defense Industries and Markets,
Conference Summary, National Intelligence Council,
Washington DC, April 1999.
[14]
Final Report of the Defense Science Board Task
Force on Globalization and Security, Office
of the Undersecretary of Defense for Science and
Technology, Washington DC, December 1999.
[15]
Examples of potential microeconomic Achilles
Heels include the inability of companies to
remain competitive, shareholder-value-based
decisions to leave the defense business, inadequate
military-relevant innovation from private research
and development funding, and the sustained inability
to compete with the commercial sector for skilled
personnel.
The pattern of armaments funding is one indicator of change.
That pattern has shifted appreciably throughout the decade of the 1990’s. Worldwide
military expenditures and national armament budgets have dropped significantly.
